Honest Company, Inc.

Previous wording

•Costs associated with Powering Honest Growth, including restructuring costs, are expected to be approximately $28.0 million to $31.0 million to be recognized through the first quarter of 2027. Of this range, we expect approximately $5.0 million to $6.0 million to be related to restructuring costs, primarily comprising contractual and external obligation costs, employee and personnel-related costs and asset and other restructuring-related costs, and approximately $23.0 million to $25.0 million to be related to other costs included in cost of revenue, primarily related to a discrete inventory write-down related to exiting apparel category as a seller of merchandise, fixed asset impairments, and costs associated with a warehouse closure, some of which have already been incurred.

Current wording

•Costs associated with Powering Honest Growth, including restructuring costs, are expected to be approximately $28.0 million to $31.0 million to be recognized through the first quarter of 2027. Of this range, we expect approximately $5.0 million to $7.0 million to be related to restructuring costs, primarily comprising contractual and external obligation costs, employee and personnel-related costs and asset and other restructuring-related costs, and approximately $23.0 million to $24.0 million to be related to other costs included in cost of revenue, primarily related to a discrete inventory write-down related to exiting apparel category as a seller of merchandise, fixed asset impairments, and costs associated with a warehouse closure, some of which have already been incurred.

Previous wording

◦During the three and six months ended June 30, 2026, we have recognized $1.0 million and $2.3 million, respectively, of costs related to Powering Honest Growth, for a total of approximately $26.3 million recognized to date. See table below for additional details of the costs recognized in the three and six months ended June 30, 2026.

Current wording

◦During the three and nine months ended September 30, 2026, we have recognized $1.1 million and $3.4 million, respectively, of costs related to Powering Honest Growth, for a total of approximately $27.4 million recognized to date. See table below for additional details of the costs recognized in the three and nine months ended September 30, 2026.

Previous wording

•The cash impact of costs related to Powering Honest Growth is expected to be in the range of approximately $10.0 million to $13.0 million for the full years 2026 and 2027, with $6.5 million cash paid through the first half of 2026 and the remainder to be paid in the second half of 2026 and in 2027.

Current wording

•The cash impact of costs related to Powering Honest Growth is expected to be in the range of approximately $10.0 million to $13.0 million for the full years 2026 and 2027, with $8.9 million cash paid through September 30, 2026 and the remainder to be in the fourth quarter of 2026 and in 2027.

Previous wording

(2) Includes an adjustment related to contract and external obligation costs for the three months ended June 30, 2026. For further details on the restructuring element of Powering Honest Growth, refer to Note 12, “Restructuring” included in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Current wording

(2) Includes an adjustment related to contract and external obligation costs for the nine months ended September 30, 2026. For further details on the restructuring element of Powering Honest Growth, refer to Note 12, “Restructuring” included in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Previous wording

The core of our growth strategy centers around increasing physical availability through expanded stores, doors, aisles, shelves and facings and increasing digital availability of our products in retail customers websites, and third-party ecommerce sites. While we have made significant progress in our distribution gains, we are still under indexed compared to competition. Our partnerships with leading third-party retail platforms and national retailers have broadened our consumer reach, raised our brand awareness and enhanced our margins through operating leverage.

Current wording

A core component of our growth strategy centers around increasing physical availability through expanded stores, doors, aisles, shelves and facings and increasing digital availability of our products in retail customers’ websites, and third-party ecommerce sites. While we have made significant progress in our distribution gains, we are still under indexed compared to competition. Our partnerships with leading third-party retail platforms and national retailers have broadened our consumer reach, raised our brand awareness and enhanced our margins through operating leverage.

Previous wording

We will continue to pursue partnerships with a wide variety of retailers, including mass retailers, online retailers, club retailers, grocery stores, drugstores and specialty retailers. Our ability to execute this strategy will depend on a number of factors, such as competitive dynamics and retailers’ satisfaction with the sales and profitability of our products, channel shifts of their customers, and their own supply chain, order timing, and inventory needs, which may fluctuate from period to period. For example, we experienced distribution losses with two of our largest customers on certain diaper SKUs mainly related to these retailers' footprint changes for certain product categories overall and a shift to more exclusive non-gendered prints with one of these retailers, which has impacted our revenue since 2025, and we expect will continue to negatively impact our diaper revenue in the future. Product offerings in the diaper category remain competitive and retailer decisions related to the sale or promotion of competitive diaper products has negatively impacted our diaper revenue in 2026, which we expect to continue in the future.

Current wording

We will continue to pursue partnerships with a wide variety of retailers, including mass retailers, online retailers, club retailers, grocery stores, drugstores and specialty retailers. Our ability to execute this strategy will depend on a number of factors, such as competitive dynamics and retailers’ satisfaction with the sales and profitability of our products, channel shifts of their customers, and their own supply chain, order timing, and inventory needs, which may fluctuate from period to period. For example, we experienced distribution losses with two of our largest customers on certain diaper SKUs mainly related to these retailers' footprint changes for certain product categories overall and a shift to more exclusive non-gendered prints with one of these retailers, which has impacted our revenue since 2025, and we expect will continue to negatively impact our diaper revenue in the future. Product offerings in the diaper category remain competitive and retailer decisions related to the sale or promotion of competitive diaper products have negatively impacted our diaper revenue in 2026, which we expect to continue in the future.

Previous wording

Due to higher costs of shipping and fulfillment activities related to our DTC channel and other related costs, we no longer utilize Honest.com as a shipping and fulfillment channel or sell products through this channel as of December 31, 2025 and instead have shifted our focus and investments towards more efficient and scalable distribution models with our retail and digital customers. The Honest.com website remains a resource for educating consumers, showcasing our complete product portfolio, and driving consumers to purchase offsite. Our discontinuation of Honest.com as a direct shipping and fulfillment channel negatively impacted our revenue for the year ended December 31, 2025 and the first half of 2026; however, we also expect that it will enable improved gross margin in future years.

Current wording

Due to higher costs of shipping and fulfillment activities related to our DTC channel and other related costs, we no longer utilize Honest.com as a shipping and fulfillment channel or sell products through this channel as of December 31, 2025 and instead have shifted our focus and investments towards more efficient and scalable distribution models with our retail and digital customers. The Honest.com website remains a resource for educating consumers, showcasing our complete product portfolio, and driving consumers to purchase offsite. Our discontinuation of Honest.com as a direct shipping and fulfillment channel negatively impacted our revenue for the year ended December 31, 2025 and nine months ended September 30, 2026; however, we also expect that it will enable improved gross margin in future years.

Previous wording

There has been and continues to be an adverse impact on global economic conditions, specifically tariffs and inflationary pressures, which has adversely affected our supply chain in regards to cost of revenue. We have experienced and anticipate continued increases in product costs due to inflationary pressures, which has in the past and could continue to hamper our ability to drive margin expansion.

Current wording

There has been and continues to be an adverse impact on global economic conditions, specifically tariffs and inflationary pressures, which has adversely affected our supply chain in regards to cost of revenue and operating expenses. We have experienced and anticipate continued increases in product costs due to inflationary pressures, which has in the past and could continue to hamper our ability to drive margin expansion. In addition, the ongoing military conflicts have increased our global shipping costs and may in the future negatively impact the cost of petrochemicals which are used in the raw materials and packaging in our personal care products.

Previous wording

In addition, notwithstanding legal challenges, we expect tariffs to continue to negatively impact the cost of raw materials, components and finished goods, which has adversely impacted our operational expenses, and may negatively impact our ability to source our finished goods and components. We have taken measures to bolster key aspects of our supply chain and mitigate the impact of tariffs, such as creating an agile supply chain, ensuring sufficient inventory to support our continued growth, minimizing lead times for raw materials, and implementing a robust cost-savings program, as part of our tariff mitigation strategy. In addition, in early 2025 we hired a Senior Vice President of Supply Chain, a newly created role, which has enabled us to accelerate some of the cost savings opportunities we have developed. If we are not successful in our attempts to bolster our supply chain and mitigate the impact of tariffs, our product and fulfillment costs may increase and our business, financial condition, results of operations and prospects could be adversely affected. For example, the fluctuation in tariff rates since 2025 and the ongoing uncertainty of those rates, has primarily impacted our wipes product costs, and may in the future impact our ability to forecast the tariff impacts on our cost of revenue.

Current wording

In addition, notwithstanding legal challenges, we expect tariffs to continue to negatively impact the cost of raw materials, components and finished goods, which has adversely impacted our operational expenses, and may negatively impact our ability to source our finished goods and components. We have taken measures to bolster key aspects of our supply chain and mitigate the impact of tariffs, such as creating an agile supply chain, ensuring sufficient inventory to support our continued growth, minimizing lead times for raw materials, and implementing a robust cost-savings program, as part of our tariff mitigation strategy. In addition, in early 2025 we hired a Senior Vice President of Supply Chain, a newly created role, which has enabled us to accelerate some of the cost savings opportunities we have developed. If we are not successful in our attempts to bolster our supply chain and mitigate the impact of tariffs, our product and fulfillment costs may increase and our business, financial condition, results of operations and prospects could be adversely affected. For example, the fluctuation in tariff rates since 2025, and the ongoing uncertainty of those rates have primarily impacted our wipes product costs, and has impacted and may in the future impact our ability to forecast the tariff impacts on our cost of revenue.

Previous wording

Following the February 2026 U.S. Supreme Court ruling that invalidated specific tariffs under the International Emergency Economic Powers Act (“IEEPA”), we are evaluating our eligibility for refunds of previously paid import duties. Beginning in April 2026, we began filing refund claims with U.S. Customs and Border Protection related to eligible IEEPA tariff payments made. During the three and six months ended June 30, 2026, we received IEEPA tariff refunds totaling $11.9 million, which were recognized as a $6.6 million reduction in cost of revenue and a $0.5 million increase in interest income on the condensed consolidated statements of comprehensive income, and as a $0.6 million reduction in inventory on the condensed consolidated balance sheets. Due to the inherent uncertainty surrounding the timing and recoverability of additional refunds, no receivable or corresponding offset to expense or asset was recognized as of June 30, 2026. We continue to monitor these developments, including potential refund obligations to third-party manufacturers. For details on tariff refunds received, refer to

Current wording

Following the February 2026 U.S. Supreme Court ruling that invalidated specific tariffs under the International Emergency Economic Powers Act (“IEEPA”), we are evaluating our eligibility for refunds of previously paid import duties. Beginning in April 2026, we began filing refund claims with U.S. Customs and Border Protection related to eligible IEEPA tariff payments made. During the nine months ended September 30, 2026, we received IEEPA tariff refunds of $11.9 million, which were recognized as a $6.6 million reduction in cost of revenue and a $0.5 million increase in interest income on the condensed consolidated statements of comprehensive income, and as a $0.6 million reduction in inventory on the condensed consolidated balance sheets. Due to the inherent uncertainty surrounding the timing and recoverability of additional refunds, no receivable or corresponding offset to expense or asset was recognized as of September 30, 2026. For more details on tariff refunds received, refer to Note 7, “Commitments and Contingencies” included in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Previous wording

We are also taking action to optimize our supply chain footprint and inventory management, along with leveraging technology to improve systems. Effective June 30, 2026, we terminated our agreement with GEODIS Logistics LLC for the use and services of a Pennsylvania warehouse that was previously part of our distribution network. As a result, we now operate exclusively in the Nevada warehouse, a state-of-the-art facility leased by us with a focus on automated large scale retail fulfillment. We expect that the ongoing military conflicts may further increase our global shipping costs and could negatively impact the cost of petrochemicals which are used in the raw materials and packaging in our personal care products.

Current wording

We are also taking action to optimize our supply chain footprint and inventory management, along with leveraging technology to improve systems. Effective June 30, 2026, we terminated our agreement with GEODIS Logistics LLC for the use and services of a Pennsylvania warehouse that was previously part of our distribution network, which resulted in favorable supply chain rates due to lower fulfillment costs during the three months ended September 30, 2026. As a result, we now operate exclusively in the Nevada warehouse, a state-of-the-art facility leased by us with a focus on automated large scale retail fulfillment.

Previous wording

We have experienced purchase price increases from our third-party manufacturers in the past and could face escalation of purchase costs and cost of revenue in the future. In 2025, we agreed to increased purchase costs from our diaper manufacturer and received requests to renegotiate purchase costs from other third-party manufacturers, which negotiations are ongoing. We have implemented price increases in the past and we may implement additional price increases in the future as needed to offset current and future input cost inflation and to pursue productivity initiatives to offset inflation. However, we may not be able to increase our prices or productivity sufficiently enough to offset these costs. Customer demand for our products may change based on price increases.

Current wording

We have experienced purchase price increases from our third-party manufacturers, including our diaper manufacturer, in the past, have received requests to renegotiate purchase costs from other third-party manufacturers, and could face escalation of purchase costs and cost of revenue in the future. We have implemented price increases in the past and we may implement additional price increases in the future as needed to offset current and future input cost inflation and to pursue productivity initiatives to offset inflation. However, we may not be able to increase our prices or productivity sufficiently enough to offset these costs. Customer demand for our products may change based on price increases.

Previous wording

We believe consumers value the flexibility in terms of where and when they choose to purchase Honest products. We also believe that consumers research their personal care ingredients and recognize the quality of Honest products, knowing that there are over 3,500 chemicals and materials that we choose not to formulate with. Given changing macroeconomic conditions, we also believe that consumers have changed their shopping behaviors and have become more price sensitive when purchasing products in some of our product categories, including diapers. In the second quarter of 2026, we implemented price reductions on our diapers, which impacted revenue and margin in this product category.

Current wording

We believe consumers value the flexibility in terms of where and when they choose to purchase Honest products. We also believe that consumers research their personal care ingredients and recognize the quality of Honest products, knowing that there are over 3,500 chemicals and materials that we choose not to formulate with. Given changing macroeconomic conditions, we also believe that consumers have changed their shopping behaviors and have become more price sensitive when purchasing products in some of our product categories, including diapers.

Previous wording

In August 2022, we entered into a supplier services agreement with Butterblu, LLC (“Butterblu”) pursuant to which Butterblu provided certain design, manufacturing, sales and marketing services to us (the “Supplier Services Agreement”). As part of the Supplier Services Agreement, we agreed to purchase and own inventory for the term of the agreement, which was originally until December 31, 2026, unless terminated sooner. On November 5, 2025, we sent a Notice of Termination to Butterblu and sued the company for alleged breaches of the Supplier Services Agreement. Through agreement of the parties following our Notice of Termination, Honest and Butterblu extended the Supplier Services Agreement on a temporary basis through December 26, 2025. The Supplier Services Agreement was formally terminated on December 26, 2025. Upon termination, Butterblu was required to discontinue using Honest’s trademarks and prints and to consummate all pending purchase orders received in writing as of the November 5, 2025 termination date, and Honest has the right to sell off all products sourced by Butterblu until and through December 26, 2026 and shall pay Butterblu the Base Service Fee, defined as 22% of Honest's net revenue for product sales and adjusted to ensure that the Base Service Fee does not exceed Honest's gross profit for product sales in the applicable quarter, for product sales through December 26, 2026. The parties are in litigation, which is described in Note 7, "Commitments and Contingencies," included in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Litigation related to our respective obligations under the Supplier Services Agreement, the termination of this Supplier Services Agreement, any disputes over the terms of the termination, and costs related to the apparel inventory we own have negatively impacted revenue and gross profit, partially offset by lower operating costs since the fourth quarter ended December 31, 2025, and are expected to continue to adversely impact our results of operations in 2026. In addition, the loss of the relationship with Butterblu negatively impacted apparel revenue and will negatively impact apparel revenue in the future, which may adversely affect our results of operations.

Current wording

In August 2022, we entered into a supplier services agreement with Butterblu, LLC (“Butterblu”) pursuant to which Butterblu provided certain design, manufacturing, sales and marketing services to us (the “Supplier Services Agreement”). As part of the Supplier Services Agreement, we agreed to purchase and own inventory for the term of the agreement, which was originally until December 31, 2026, unless terminated sooner. On November 5, 2025, we sent a Notice of Termination to Butterblu and sued the company for alleged breaches of the Supplier Services Agreement. Through agreement of the parties following our Notice of Termination, Honest and Butterblu extended the Supplier Services Agreement on a temporary basis through December 26, 2025. The Supplier Services Agreement was formally terminated on December 26, 2025. Upon termination, Butterblu was required to discontinue using Honest’s trademarks and prints and to consummate all pending purchase orders received in writing as of the November 5, 2025 termination date, and Honest has the right to sell off all products sourced by Butterblu until and through December 26, 2026 and shall pay Butterblu the Base Service Fee, defined as 22% of Honest's net revenue for product sales and adjusted to ensure that the Base Service Fee does not exceed Honest's gross profit for product sales in the applicable quarter, for product sales through December 26, 2026. The parties are in litigation, which is described in Note 7, "Commitments and Contingencies," included in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Litigation related to our respective obligations under the Supplier Services Agreement, the termination of this Supplier Services Agreement, any disputes over the terms of the termination, and costs related to the apparel inventory we own have negatively impacted revenue and gross profit, partially offset by lower operating costs since the fourth quarter ended December 31, 2025, and are expected to continue to adversely impact our results of operations. In addition, the loss of the relationship with Butterblu negatively impacted apparel revenue and will negatively impact apparel revenue in the future, which may adversely affect our results of operations.

Previous wording

On June 1, 2026, we entered into a License Agreement (the “License Agreement”) and an accompanying Inventory Purchase Agreement with O5-MD, LLC and O5 North ULC (collectively, the “Licensee”). The License Agreement grants the Licensee an exclusive license to manufacture, distribute, promote, and sell certain apparel, accessories, bath and bedding products, and footwear under "The Honest Company" and "Honest Baby" trademarks. The primary territory for the License Agreement covers the United States, Canada, and Mexico, as well as specified international club and off-price accounts. Under the License Agreement, we will earn royalty revenue on the Licensee's net sales. The initial term of the License Agreement expires on December 31, 2030. The Licensee holds the option to renew the agreement for two additional successive five-year terms, provided it complies with all material terms, meets required notice periods, among other requirements. For the three and six months ended June 30, 2026, we did not recognize any royalty revenue with respect to the License Agreement.

Current wording

On June 1, 2026, we entered into a License Agreement (the “License Agreement”) and an accompanying Inventory Purchase Agreement with O5-MD, LLC and O5 North ULC (collectively, the “Licensee”). The License Agreement grants the Licensee an exclusive license to manufacture, distribute, promote, and sell certain apparel, accessories, bath and bedding products, and footwear under "The Honest Company" and "Honest Baby" trademarks. The primary territory for the License Agreement covers the United States, Canada, and Mexico, as well as specified international club and off-price accounts. Under the License Agreement, we will earn royalty revenue on the Licensee's net sales. The initial term of the License Agreement expires on December 31, 2030. The Licensee holds the option to renew the agreement for two additional successive five-year terms, provided it complies with all material terms, meets required notice periods, among other requirements. For the three and nine months ended September 30, 2026, we did not recognize any royalty revenue with respect to the License Agreement.

Previous wording

In connection with the License Agreement, the Licensee agreed to purchase our remaining on-hand inventory of licensed apparel products for a total purchase price of $10.0 million, subject to certain adjustments for inventory deficiencies or missing certifications. The purchase price is payable in installments, with four 25% payments tied to the delivery timeline. For the three and six months ended June 30, 2026, we recognized $3.1 million in revenue and $3.1 million incost of revenue related to the partial liquidation of the remaining apparel inventory, that was delivered to the Licensee at its carrying value, resulting in no gross profit. These transactions resulted in a corresponding increase in accounts receivable and a decrease in inventory of $3.1 million each.

Current wording

In connection with the License Agreement, the Licensee agreed to purchase our remaining on-hand inventory of licensed apparel products for a total purchase price of $10.0 million, subject to certain adjustments for inventory deficiencies or missing certifications. The purchase price is payable in installments, with four 25% payments tied to the delivery timeline. For the three and nine months ended September 30, 2026, we recognized $5.3 million and $8.5 million, respectively, in revenue and cost of revenue from the partial liquidation of the remaining apparel inventory. The inventory was delivered to the Licensee at its carrying value, resulting in no gross profit. These transactions increased accounts receivable and decreased inventory by $8.8 million, as of September 30, 2026.

Previous wording

Selling, general and administrative expenses consist primarily of personnel costs, principally for our selling and administrative functions. These include personnel-related expenses, including salaries, bonuses, benefits and stock-based compensation expenses. Selling, general and administrative expenses also include technology expenses; professional fees, including audit and legal expenses; donation expenses including overhead and tariffs; facility costs, including insurance, utilities and rent relating to our headquarters; third-party service fees related to our Supplier Services Agreement for our exited apparel products and, depreciation and amortization expenses. We expect our general and administrative expenses to decrease as a percentage of revenue as we continue to grow our business and organizational capabilities and efficiencies. We have incurred and expect in the future to continue to incur additional third-party professional fees related to compliance obligations as a public company.

Current wording

Selling, general and administrative expenses consist primarily of personnel costs, principally for our selling and administrative functions. These include personnel-related expenses, including salaries, bonuses, benefits and stock-based compensation expenses. Selling, general and administrative expenses also include technology expenses; professional fees, including audit and legal expenses; donation expenses including overhead and tariffs; facility costs, including insurance, utilities and rent relating to our headquarters; third-party service fees related to our Supplier Services Agreement for our exited apparel products and agency commissions, and depreciation and amortization expenses. We expect our selling, general and administrative expenses to decrease as a percentage of revenue as we continue to grow our business and organizational capabilities and efficiencies. We have incurred and expect in the future to continue to incur additional third-party professional fees related to compliance obligations as a public company.

Previous wording

We are subject to federal and state income taxes in the United States. Our annual estimated tax rate differed from the U.S. federal statutory rate of 21% primarily as a result of a valuation allowance against deferred tax assets, stock-based compensation, state taxes, nondeductible executive compensation and other permanent differences. We maintain a full valuation allowance for our federal and state deferred tax assets, including net operating loss carryforwards, as we have concluded that it is not more likely than not that the deferred tax assets will be realized.

Current wording

We are subject to federal and state income taxes in the United States. Our annual estimated tax rate differed from the U.S. federal statutory rate of 21% primarily as a result of a valuation allowance against deferred tax assets, stock-based compensation, state taxes, nondeductible executive compensation and other permanent differences. During the three months ended September 30, 2026, we determined that the positive evidence supporting the release of substantially all of the valuation allowance outweighed the negative evidence supporting a full valuation allowance; therefore, it is more likely than not that substantially all of the deferred tax assets will be realized. As a result, during the three months ended September 30, 2026, we recognized a discrete income tax benefit of $89.4 million, primarily related to the release of substantially all of the valuation allowance. As of September 30, 2026, we maintain a valuation allowance of $4.0 million related to state net operating losses that are expected to expire prior to realization. See Note 10, “Income Taxes” included in these condensed consolidated financial statements for more information.

Previous wording

Comparison of the Three and Six Months Ended June 30, 2026 and 2025

Current wording

Comparison of the Three and Nine Months Ended September 30, 2026 and 2025

Previous wording

Revenue was $83.3 million for the three months ended June 30, 2026, as compared to $93.5 million for the three months ended June 30, 2025. The decrease of $10.2 million, or 10.9%, was primarily due to the strategic exits related to Powering Honest Growth and a decline in diaper revenue, partially offset by an increase in revenue mainly within wipes and personal care and other products.

Current wording

Revenue was $84.6 million for the three months ended September 30, 2026, as compared to $92.6 million for the three months ended September 30, 2025. The decrease of $8.0 million, or 8.6%, was primarily due to the net impact of strategic exits related to Powering Honest Growth and a decline in diaper revenue, partially offset by an increase in revenue within wipes and personal care products.

Previous wording

Revenue was $161.4 million for the six months ended June 30, 2026, as compared to $190.7 million for the six months ended June 30, 2025. The decrease of $29.3 million, or 15.4%, was due to the strategic exits related to Powering Honest Growth and a decline in diaper revenue, partially offset by an increase in revenue mainly within wipes and personal care and other products.

Current wording

Revenue was $246.0 million for the nine months ended September 30, 2026, as compared to $283.3 million for the nine months ended September 30, 2025. The decrease of $37.3 million, or 13.2%, was primarily due to the net impact of strategic exits related to Powering Honest Growth and a decline in diaper revenue, partially offset by an increase in revenue within wipes and personal care products.

Previous wording

Cost of revenue was $42.9 million for the three months ended June 30, 2026, as compared to $55.7 million for the three months ended June 30, 2025. The decrease of $12.8 million, or 22.9%, was primarily driven by lower costs associated with strategic exits under Powering Honest Growth and tariff refunds. Cost of revenue as a percentage of revenue decreased by 800 basis points compared to the three months ended June 30, 2025.

Current wording

Cost of revenue was $46.5 million for the three months ended September 30, 2026, as compared to $58.1 million for the three months ended September 30, 2025. The decrease of $11.5 million, or 19.9%, was primarily driven by fewer units sold due to strategic exits under Powering Honest Growth and lower fulfillment and tariff costs. Cost of revenue as a percentage of revenue decreased by 774 basis points compared to the three months ended September 30, 2025.

Previous wording

Gross profit was $40.4 million for the three months ended June 30, 2026, as compared to $37.8 million for the three months ended June 30, 2025. The increase of $2.6 million, or 6.9%, was primarily related to tariff refunds and favorable product mix, partially offset by sales volume declines and restructuring-related costs related to Powering Honest Growth.

Current wording

Gross profit was $38.1 million for the three months ended September 30, 2026, as compared to $34.5 million for the three months ended September 30, 2025. The increase of $3.6 million, or 10.4%, was primarily related to favorable supply chain rates due to lower fulfillment costs and tariff rates, partially offset by sales volume declines due to Powering Honest Growth.

Previous wording

Cost of revenue was $87.8 million for the six months ended June 30, 2026, as compared to $115.3 million for the six months ended June 30, 2025. The decrease of $27.5 million, or 23.9%, was primarily driven by lower costs associated with strategic exits under Powering Honest Growth and tariff refunds. Cost of revenue as a percentage of revenue decreased by 607 basis points compared to the six months ended June 30, 2025.

Current wording

Cost of revenue was $134.3 million for the nine months ended September 30, 2026, as compared to $173.4 million for the nine months ended September 30, 2025. The decrease of $39.1 million, or 22.5%, was primarily driven by fewer units sold due to strategic exits under Powering Honest Growth, lower fulfillment and tariff costs, including refunds. Cost of revenue as a percentage of revenue decreased by 660 basis points compared to the nine months ended September 30, 2025.

Previous wording

Selling, general and administrative expenses were $32.4 million for the six months ended June 30, 2026, as compared to $41.4 million for the six months ended June 30, 2025. The decrease of $9.0 million, or 21.6%, was primarily due to a $5.2 million decline in third-party service fees, a $1.4 million decrease in legal expenses, a $0.8 million decrease in donation expense and a $0.7 million decrease in executive officer transition expenses. Selling, general and administrative expenses as a percentage of revenue decreased 1.6% as compared to the six months ended June 30, 2025.

Current wording

Selling, general and administrative expenses were $49.1 million for the nine months ended September 30, 2026, as compared to $59.1 million for the nine months ended September 30, 2025. The decrease of $10.0 million, or 17.0%, was primarily due to a $7.5 million decline in third-party service fees, a $1.1 million decrease in legal expenses and a $0.9 million decrease in donation expense. Selling, general and administrative expenses as a percentage of revenue decreased 90 bps as compared to the nine months ended September 30, 2025.

Previous wording

Marketing expenses were $14.5 million for the three months ended June 30, 2026, as compared to $12.6 million for the three months ended June 30, 2025. The increase of $1.9 million, or 15.3%, was primarily due to increased marketing investment to support our higher growth, higher margin wipes and personal care platforms. Marketing expenses as a percentage of revenue increased 3.9% as compared to the three months ended June 30, 2025.

Current wording

Marketing expenses were $17.7 million for the three months ended September 30, 2026, as compared to $14.8 million for the three months ended September 30, 2025. The increase of $2.9 million, or 19.8%, was primarily due to increased marketing investment to support our higher growth, higher margin wipes and personal care platforms. Marketing expenses as a percentage of revenue increased 490 bps as compared to the three months ended September 30, 2025.

Previous wording

Marketing expenses were $28.5 million for the six months ended June 30, 2026, as compared to $24.8 million for the six months ended June 30, 2025. The increase of $3.6 million, or 14.7%, was primarily due to increased marketing investment to support our higher growth, higher margin wipes and personal care platforms. Marketing expenses as a percentage of revenue increased 4.6% as compared to the six months ended June 30, 2025.

Current wording

Marketing expenses were $46.2 million for the nine months ended September 30, 2026, as compared to $39.6 million for the nine months ended September 30, 2025. The increase of $6.6 million, or 16.6%, was primarily due to increased marketing investment to support our higher growth, higher margin wipes and personal care platforms. Marketing expenses as a percentage of revenue increased 480 bps as compared to the nine months ended September 30, 2025.

Previous wording

Restructuring expenses included asset and other restructuring-related costs of $0.2 million, employee and personnel-related costs of $0.1 million, and an adjustment to contract and external obligation costs of $0.7 million for the three months ended June 30, 2026.

Current wording

Restructuring expenses included asset and other restructuring-related costs of $1.0 million, employee and personnel-related costs of $0.3 million, and an adjustment to contract and external obligation costs of $0.7 million for the nine months ended September 30, 2026.

Previous wording

For further details on Powering Honest Growth, refer to “Transformation 2.0: Powering Honest Growth” above and Note 12, “Restructuring” in the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. For the three and six months ended June 30, 2025, we did not incur any restructuring expenses.

Current wording

For further details on Powering Honest Growth, refer to “Transformation 2.0: Powering Honest Growth” above and Note 12, “Restructuring” in the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. For the three and nine months ended September 30, 2025, we did not incur any restructuring expenses.

Previous wording

Research and development expenses were $1.7 million for the three months ended June 30, 2026, as compared to $2.0 million for three months ended June 30, 2025.

Current wording

Research and development expenses were $2.1 million for the three months ended September 30, 2026, as compared to $1.7 million for three months ended September 30, 2025.

Previous wording

Interest and other income (expense), net was net income of $1.2 million for the three months ended June 30, 2026, as compared to net income of $1.0 million for the three months ended June 30, 2025.

Current wording

Interest and other income (expense), net was net income of $0.8 million for the three months ended September 30, 2026, as compared to net income of $0.6 million for the three months ended September 30, 2025.

Previous wording

Interest and other income (expense), net was net income of $1.8 million for the six months ended June 30, 2026, as compared to net income of $1.8 million for the six months ended June 30, 2025.

Current wording

Interest and other income (expense), net was net income of $2.6 million for the nine months ended September 30, 2026, as compared to net income of $2.4 million for the nine months ended September 30, 2025.

Previous wording

As of June 30, 2026, we had $105.9 million of cash and cash equivalents. Although we are dependent on our ability to generate sufficient cash flow from operations or raise capital to achieve our business objectives, we believe our existing cash and cash equivalents together with cash generated from operations will be sufficient to meet our short-term projected operations for the next 12 months from the date of issuance of our condensed consolidated financial statements. We will need to generate sufficient cash from operations or may need to raise additional capital to meet our long-term working capital and capital expenditure needs in the future. We also have availability under our 2026 Credit Facility, which was not drawn as of June 30, 2026.

Current wording

As of September 30, 2026, we had $103.0 million of cash and cash equivalents. Although we are dependent on our ability to generate sufficient cash flow from operations or raise capital to achieve our business objectives, we believe our existing cash and cash equivalents together with cash generated from operations will be sufficient to meet our short-term projected operations for the next 12 months from the date of issuance of our condensed consolidated financial statements. We will need to generate sufficient cash from operations or may need to raise additional capital to meet our long-term working capital and capital expenditure needs in the future. We also have availability under our 2026 Credit Facility, which was not drawn as of September 30, 2026.

Previous wording

The 2026 Credit Facility provides a revolving credit facility in an aggregate principal amount of up to $35.0 million (the “Commitment Amount”) and includes a sub-facility that provides for the issuance of letters of credit in an amount of up to $15.0 million at any time outstanding. If more than 50% of the Commitment Amount is outstanding, availability of the 2026 Credit Facility will be based upon a borrowing base formula and periodic borrowing base certifications valuing certain of our accounts receivable and inventory as reduced by certain reserves, if any. The 2026 Credit Facility includes an uncommitted accordion feature that allows for increases in the Commitment Amount to as much as an additional $35.0 million, for up to $70.0 million in potential revolving commitments. The 2026 Credit Facility is subject to customary fees for loan facilities of this type, including a commitment fee based on the average daily undrawn portion of the 2026 Credit Facility. We recognize the commitment fee as incurred in interest and other income (expense), net in the condensed consolidated statements of comprehensive income. For the three and six months ended June 30, 2026, the commitment fee incurred was immaterial. As of June 30, 2026, there were $2.7 million of outstanding letters of credit. As of June 30, 2026, there was no outstanding borrowing under the 2026 Credit Facility, but the letters of credit reduce the amount available under the 2026 Credit Facility on a dollar-for-dollar basis.

Current wording

The 2026 Credit Facility provides a revolving credit facility in an aggregate principal amount of up to $35.0 million (the “Commitment Amount”) and includes a sub-facility that provides for the issuance of letters of credit in an amount of up to $15.0 million at any time outstanding. If more than 50% of the Commitment Amount is outstanding, availability of the 2026 Credit Facility will be based upon a borrowing base formula and periodic borrowing base certifications valuing certain of our accounts receivable and inventory as reduced by certain reserves, if any. The 2026 Credit Facility includes an uncommitted accordion feature that allows for increases in the Commitment Amount to as much as an additional $35.0 million, for up to $70.0 million in potential revolving commitments. The 2026 Credit Facility is subject to customary fees for loan facilities of this type, including a commitment fee based on the average daily undrawn portion of the 2026 Credit Facility. We recognize the commitment fee as incurred in interest and other income (expense), net in the condensed consolidated statements of comprehensive income. For the three and nine months ended September 30, 2026, the commitment fee incurred was immaterial. As of September 30, 2026, there were $1.2 million of outstanding letters of credit. As of September 30, 2026, there was no outstanding borrowing under the 2026 Credit Facility, but the letters of credit reduce the amount available under the 2026 Credit Facility on a dollar-for-dollar basis.

Previous wording

Net cash provided by operating activities of $37.8 million for the six months ended June 30, 2026 was primarily due to a net increase in cash related to changes in operating assets and liabilities of $15.2 million, non-cash adjustments of $11.9 million and net income of $10.6 million. The change in operating assets and liabilities primarily consisted of a $23.0 million decrease in inventory as part of our Operating Discipline pillar, partially offset by a $4.4 million increase in accounts receivable, a $2.3 million use of cash due to operating lease obligations and a $0.8 million increase in prepaid expenses and other assets. Non-cash adjustments primarily consisted of stock-based compensation of $5.5 million, amortization of operating Right-of-Use (“ROU”) assets of $3.3 million and depreciation and amortization of $1.3 million. Non-cash adjustments for accounts receivable reserves, inventory reserves, donation expense and utilization and write-off of marketing and transportation credits are included in "other" in the accompanying condensed consolidated statements of cash flows.

Current wording

Net cash provided by operating activities of $33.3 million for the nine months ended September 30, 2026 was primarily due to net income of $102.0 million and a net increase in cash related to changes in operating assets and liabilities of $2.9 million, offset by non-cash adjustments of $71.6 million. The change in operating assets and liabilities primarily consisted of a $20.1 million decrease in inventory, partially offset by a $11.3 million increase in accounts receivable and a $6.9 million use of cash due to operating lease obligations. Non-cash adjustments primarily consisted of a deferred income tax benefit of $89.4 million, stock-based compensation expense of $8.6 million, amortization of operating Right-of-Use (“ROU”) assets of $4.9 million and depreciation and amortization of $2.0 million. Other non-cash adjustments, primarily consisting of accounts receivable reserves, inventory reserves, donation expense and utilization and write-off of marketing and transportation credits are included in "other" in the accompanying condensed consolidated statements of cash flows.

Previous wording

Net cash used in operating activities of $3.7 million for the six months ended June 30, 2025 was primarily due to a net decrease in cash related to changes in operating assets and liabilities of $22.9 million, partially offset by non-cash adjustments of $12.1 million and net income of $7.1 million. Cash used in operating activities primarily consisted of a $11.4 million increase in inventory, a $6.5 million decrease in accounts payable and accrued expenses due to timing of payments, a $4.2 million use of cash due to operating lease obligations, and a $1.6 million increase in accounts receivable, partially offset by a $1.0 million decrease in prepaid expenses and other assets. Non-cash adjustments primarily consisted of stock-based compensation of $5.1 million, amortization of operating ROU assets of $3.3 million, and depreciation and amortization of $1.5 million.

Current wording

Net cash used in operating activities of $4.2 million for the nine months ended September 30, 2025 was primarily due to a net decrease in cash related to changes in operating assets and liabilities of $29.4 million, partially offset by non-cash adjustments of $17.3 million and net income of $7.9 million. The change in operating assets and liabilities primarily consisted of a $15.1 million decrease in accounts payable and accrued expenses due to timing of payments, a $10.8 million increase in inventory, a $6.4 million use of cash due to operating lease obligations, and a $0.3 million decrease in deferred revenue, partially offset by a $2.7 million decrease in prepaid expenses and other assets. Non-cash adjustments primarily consisted of stock-based compensation expense of $7.5 million, amortization of operating ROU assets of $5.0 million, and depreciation and amortization of $2.2 million. Other non-cash adjustments, primarily consisting of accounts receivable reserves, inventory reserves, donation expense and utilization and write-off of marketing and transportation credits are included in "other" in the accompanying condensed consolidated statements of cash flows.

Previous wording

Net cash used in investing activities of $2.5 million and $0.1 million for the six months ended June 30, 2026, and June 30, 2025, respectively, was due to the purchase of property and equipment.

Current wording

Net cash used in investing activities of $2.8 million and $0.3 million for the nine months ended September 30, 2026, and September 30, 2025, respectively, was due to the purchase of property and equipment.

Previous wording

Net cash used in financing activities of $19.0 million for the six months ended June 30, 2026 primarily consisted of repurchases of common stock.

Current wording

Net cash used in financing activities of $17.1 million for the nine months ended September 30, 2026 consisted primarily of $25.1 million of repurchases of common stock and $7.9 million of proceeds from stock option exercises.

Previous wording

Net cash provided by financing activities of $0.5 million for the six months ended June 30, 2025 consisted primarily of $0.4 million of proceeds from stock option award exercises.

Current wording

Net cash provided by financing activities of $0.5 million for the nine months ended September 30, 2025 consisted primarily of $0.4 million of proceeds from stock option award exercises.

Previous wording

On February 20, 2026, our Board of Directors approved our first share repurchase program for up to $25.0 million of our outstanding common stock. Under the program, share repurchases may be made at our discretion from time to time in open market transactions or privately negotiated transactions, or by other means, including through Rule 10b5-1 trading plans. The timing and number of shares repurchased under the new program will depend on a variety of factors, including, without limitation, stock price and trading volume. The repurchase program does not obligate us to purchase any shares, has no expiration date and may be modified, suspended or terminated at any time. We expect to fund repurchases with a combination of existing cash and cash equivalents and cash flows from operations.

Current wording

On February 20, 2026, our Board of Directors approved our first share repurchase program for up to $25.0 million of our outstanding common stock. As of August 6, 2026, the Company had completed the program. On October 30, 2026, our Board of Directors approved a new share repurchase program for up to $30.0 million of our outstanding common stock. Under the program, share repurchases are made at our discretion from time to time in open market or privately negotiated transactions, or by other means, including through Rule 10b5-1 trading plans. The timing and number of shares repurchased under the program will depend on a variety of factors, including, without limitation, stock price and trading volume. The share repurchase program does not obligate us to purchase any shares, has no expiration date and may be modified, suspended or terminated at any time. We expect to fund repurchases with a combination of existing cash and cash equivalents and cash flows from operations.